Big department stores in Tokyo are outflanked Discounters make deep inroads

April 18, 1993|By John E. Woodruff | John E. Woodruff,Tokyo Bureau

Tokyo -- Remember the $65 cantaloupes in those late-1980s stories about lavish Japanese department stores? The $750 neckties? The $4,300 designer suits?

Well, they're still there, and that's a big problem -- nobody's buying them these days.

For four decades, legendary names such as Takashimaya, Isetan and Matsuya presided regally over the retail segment of Japan's postwar "economic miracle." These symbols of extravagance became a "must see" for millions of tourists from the United States and other countries.

Today, no sector of this country's economy faces a more painful restructuring.

Japan's economic slowdown, combined with competition from foreign chains such as Toys 'R' Us and home-grown discounters, have hit department stores with their worst slump since World War II.

One measure of the problem: Nearly half of Tokyo's residents made fewer department store purchases last year than in 1991, a March survey by the Nikkei Consumer Industry Institute found.

Even at Ginza No. 4 Crossing,Japan's most exclusive shopping intersection, forests of "Bargain Sale" signs have sprouted on the sales floors of Wako and Mitsukoshi, two top retailers. They tell a tale of bewildered executives confronting the inconceivable: a Japan where an aura of quality and a reputation for service no longer guarantee sales.

vTC And price-cutting may not be enough to spark a turnaround.

"The problems are far too deep to be dealt with by just a series of bargain sales," said Kiyoshi Hashizume, a former department store foods manager and currently a consultant to several big chains.

"Department stores piled in money during the 'bubble economy' of the late 1980s, but the boom years just masked how out-of-date their whole way of doing business had become."

The department stores' longtime strategies have become part of their problem.

"Japanese managers hate risk, and in department stores this meant handling as much as possible of the merchandise without ever taking the risk of owning it," said Nancy Milliron, president of Pacific Dimensions, which arranges department store exhibitions of U.S. crafts.

Department stores usually take most of their goods on consignment rather than buying them, she said. And much of their space is leased to designers and name-brand suppliers, rather than being managed by the stores. The result is that in a typical store, less than 10 percent of the goods on display belong to the store, she estimates.

Suppliers also demand steep premiums for goods that are subject to returns. As a result, Japan's department store merchandise often is priced two or three times higher than the same items sold by European or U.S. retailers. And retailers are left hogtied, with little control over the prices charged in their own stores.

Today, in an era of value-conscious Japanese shoppers, high-priced merchandise won't sell.

"People's lifestyles are changing, including the way they spend money," said Shinji Kikuchi, market analyst for the Japan Department Store Association. "The emphasis has gone from brand names to value for the yen, and many department stores have not kept up with the changes."

At the same time, major companies that once picked up expensive year-end and summer gifts for clients and employees in lots of 10,000 or more have cut back. No one knows how much of that trade will return if times get better.

Department stores also are being hit by new competition from foreign retailers.

No one can quantify the impact of foreign brand-name stores such as L.L. Bean's new Tokyo shop and discounters such as Toys 'R' Us, which have been crowded since they opened. But suppliers who deal with department stores daily say the effect has been drastic.

"A lot of department store toy sections were ghost towns during the holidays last winter, and Toys 'R' Us has to be part of the reason," Ms. Milliron said.

Meanwhile, Japanese discounters are aggressively grabbing up real estate at recession rents to squeeze into prime department store territories.

Just around the corner from some of Ginza's most renowned department stores, Aoyama Clothing offers designer and name-brand men's suits at 30 percent to 60 percent off list prices. The new store has become the hottest place in Ginza for the young salaried worker to pick up his annual new outfit.

Department stores have retaliated by leaning hard on suppliers, and some have threatened to stop selling to Aoyama. But the discounter has reveled in the free publicity and thumbed its nose the complaints.

It's impossible to sort out which factor is most damaging, but the combined impact is clear, Mr. Kikuchi says. Department store sales have been down in every one of the past 12 months compared with the same month a year earlier.

Despite the problems, no one is predicting failure for any of Japan's 116 principal department store companies, which form the membership of Mr. Kikuchi's association.

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